Friday, November 04, 2011

Friday Watch


Evening Headlines

Bloomb
erg:
  • G-20 Urges EU to Quell Crisis as Greece Teeters. World leaders expressed impatience and irritation with Europe’s inability to defeat its two-year financial crisis as they urged swift resolution for the sake of the global economy. With Greece’s debt-ridden government at risk of collapsing as soon as today, Group of 20 chiefs meeting in Cannes, France, yesterday pushed European authorities to flesh out and enact a week-old rescue plan that has already shown signs of unraveling. “We are grappling with a lack of confidence in markets that leaders will act,” Australian Prime Minister Julia Gillard said in the French seaside resort. “It is therefore very important for leaders to act.” Such calls -- echoed by the U.S., Britain, China and Russia -- highlight international disappointment that Europe missed the G-20’s deadline of this week to deliver a fix for its fiscal woes. German Chancellor Angela Merkel and French President Nicolas Sarkozy sought to regain the initiative by keeping aid for Greece on ice and demanding Italy accelerate austerity. “The euro zone must absolutely send a message of credibility to the whole world,” Sarkozy told reporters. “When we take decisions they must be applied, when we set rules they must be respected.”
  • Papandreou Struggles to Hold on To Power. Prime Minister George Papandreou struggled to hold on to power after Greece’s largest opposition party rebuffed his overtures to form a national government, raising the prospect of elections that could delay aid needed to prevent default. Opposition leader Antonis Samaras rejected sharing power with Papandreou and called on the premier to quit. Papandreou, 59, scrapped a referendum on an accord with the European Union to avert a split in his party before a confidence vote scheduled for midnight tonight. “I never excluded any topic from the discussion, not even my own position,” Papandreou told lawmakers in Parliament. “I am not tied to a particular post. I repeat I am not interested in being re-elected but just in saving the country.”
  • U.S. Banks Guarantee More European Debt. As the European financial crisis worsened during the first half of 2011, U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish, and Italian debt. Guarantees provided by U.S. lenders on government, bank, and corporate debt in those countries rose by $80.7 billion, to $518 billion, according to the Bank for International Settlements. BIS doesn’t report which firms sold how much or to whom. Almost all of those guarantees are credit-default swaps, according to two people familiar with the numbers who asked not to be identified because they weren’t authorized to speak. Five banks—JPMorgan (JPM), Morgan Stanley (MS), Goldman Sachs (GS), Bank of America (BAC), and Citigroup (C) — write 97 percent of all credit-default swaps in the U.S., according to the Office of the Comptroller of the Currency.
  • Don't Bet on the BRICs. Europe is turning to emerging economies to help solve its debt crisis. Too bad they can’t deliver. Despite such bold plans, however, the emerging giants are far from prepared to deliver on them. Notwithstanding their frequent shows of solidarity, the BRICs and their brethren have about as much unity as the cast of The Bachelor. Their economies have not produced the kind of innovation and competitiveness critical to long-term global growth. Western nations have amassed debt recklessly, but the new powers are about to confront massive economic problems of their own—challenges that could bring them down before they can realize their promise.
  • Thai Rice Exports to Plunge on State Buying, Floods, Group Says. Rice shipments from Thailand, the largest exporter, will drop by half from November to January as a state-buying policy raises costs and flooding disrupts transport, according to the Thai Rice Exporters Association. Exports may slump to 500,000 metric tons per month from an average of 1 million tons in the first nine months as state purchases lift local prices and make Thai rice less competitive, Honorary President Chookiat Ophaswongse said by phone yesterday.
  • BofA(BAC) May Swap Preferreds for $6 Billion in Shares, New Debt. Bank of America Corp., the lender whose stock lost about half its value this year, may bolster its balance sheet by exchanging preferred securities for a total of $6 billion of common shares and debt. The proposed transactions may lower interest and dividend costs and improve capital levels, the Charlotte, North Carolina- based lender said yesterday in a regulatory filing. The firm may seek to issue as much as 400 million common shares and $3 billion of senior notes in privately negotiated deals, taking advantage of lower prices for the bank’s existing securities.
  • SEC Said to Review Possible Insider Trading in MF Global(MF) Bonds. The U.S. Securities and Exchange Commission is reviewing trades in MF Global Holdings Ltd. convertible bonds to determine whether some investors sold the debt based on confidential information before the firm’s demise, according to two people with direct knowledge of the matter.
  • Groupon Raised $700M Pricing IPO Above Price Range. Groupon Inc. raised $700 million in its initial public offering, said two people with knowledge of the situation, 30 percent more than it sought and valuing the biggest online-coupon provider at about $12.7 billion. The Chicago-based company sold 35 million shares at $20 each, said the people, who declined to be identified because the information isn’t public. Groupon’s sale is the biggest IPO by a U.S. Internet company since Google Inc. (GOOG) raised $1.9 billion in its 2004 initial offering, according to data compiled by Bloomberg.
  • Paulson's Main Hedge Fund Gained 2.4% in October, Paring Loss for the Year. John Paulson, the hedge-fund manager having the worst year of his career, rebounded 2.4 percent in his main fund in October and climbed in all his strategies, according to an investor update obtained by Bloomberg News. Paulson’s main fund, the Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, reduced its year-to-date loss to 44 percent. The gold share class advanced 3.3 percent last month and declined 27 percent this year. Paulson, 55, posted positive returns in all of his funds in October as stocks rallied. The Standard & Poor’s 500 Index of large U.S. companies jumped 11 percent last month on higher- than-estimated earnings and optimism that European leaders would take steps to contain the region’s debt crisis.
Wall Street Journal:
  • Berlusconi Faces Key Party Defections. A rebellion is emerging within Italian Prime Minister Silvio Berlusconi's conservative party that could have enough force to threaten his governing majority in Parliament, said people familiar with the matter—exacerbating the premier's struggle to steer Italy through the euro-zone debt crisis. At least a half-dozen lawmakers in the lower house of Parliament, where Mr. Berlusconi has a slim majority, have forged a pact to defect from the premier's ranks in future votes, these people said. The move, in the wake of defections by two other party faithful this week, is the clearest sign yet that Mr. Berlusconi's majority is dwindling.
  • Greece Blinks on Euro Threat. Greece's leadership struggled to restore political stability to the country and safeguard its membership in the euro zone, as global powers gathered in France looked for ways to halt the spiraling European debt crisis. Greek Prime Minister George Papandreou on Thursday agreed to shelve a controversial plan for a referendum on Athens's latest financial bailout. The turnabout followed a tumultuous few days that thrust Greece to the brink of political chaos, forcing euro-zone leaders to contemplate the possibility that Greece would exit from the single currency.
  • MF Global(MF) Masked Debt Risks. For the past two years, MF Global Holdings Ltd. may have disguised its debt levels to investors by temporarily slashing the debt it was carrying before publicly reporting its finances each quarter, according to an analysis by The Wall Street Journal. The activity, referred to in the financial industry as "window dressing," suggests that the troubled financial firm was shouldering more risk and using more borrowed funds to facilitate its trading than investors could easily detect from the firm's regulatory filings.
  • Google(GOOG) Ponders Pay-TV Business. Internet giant Google Inc. is considering a plan to offer paid cable-TV services to consumers, a move that could unleash a new wave of competition within the traditional TV business. Google has looked at ways to expand a previously announced project to build a high-speed Internet service in Kansas City, Mo., and Kansas City, Kan., adding video and phone service in a mirror of offerings from cable and telecom companies, according to people briefed on its plans. As a result, Google has discussed distributing major TV channels from companies like Walt Disney Co., Time Warner Inc. and Discovery Communications Inc.
  • Slowpoke Traders Look to Gain Ground on Speedsters. In markets dominated by speed, a new idea is gaining traction: slowing down. Hedge funds, mutual funds and other big investors have been looking for ways to fight back against the powerful computer systems used by so-called high-frequency traders. Such lightening-fast systems, which use algorithms to buy and sell securities, now account for more than half of U.S. stock trading, according to market researchers.
Business Insider:
Zero Hedge:
CNBC:
  • As Athens Debates Bailout, EU Weighs Greek Exit. While Greece's teetering government continued to debate whether to stay in the euro on Thursday, European leaders talked for the first time of a possible Greek exit to preserve the single currency.
  • AMD(AMD) to Cut Workforce 10% by Next Year. Advanced Micro Devices unveiled a plan Thursday to save about $200 million of operating costs in 2012 by slashing its global workforce by 10 percent and streamlining internal business processes.
  • Sony(SNE) Tumbles After Forecasting Big Annual Loss. Shares in Sony tumbled nearly 10 percent on Friday, the first day of trading after it warned of a fourth straight year of losses, with its television unit alone set to lose $2.2 billion on tumbling demand and a surging yen.
  • Fresh Round of Job Cuts Hits Banks Across Asia. Banks embarked on another round of job cuts this week in Asia, laying off hordes of staff in fixed-income, derivatives and equities businesses, hit by weak trading revenues and a slowdown in dealmaking and new issues.
NY Times:
LA Times:
Rasmussen Reports:
  • Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 20% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).
Reuters:
  • California Asks Fannie, Freddie Cut Mortgage Debt. The California attorney general on Thursday called on Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) to cut mortgage debt on the loans they own, a suggestion the government entities have long resisted. "It has become clear to me that the only way to keep distressed California homeowners in their homes is through meaningful principal reduction," attorney general Kamala Harris said in a statement. Harris faces pressure to extract a better deal for California homeowners in long-running multi-state talks to settle mortgage abuses by top banks. The majority of underwater mortgages in the United States are owned by Fannie and Freddie, which the proposed settlement is not expected to include. Harris said Fannie and Freddie's regulator, Edward DeMarco, should step down if he is unwilling to support principal reduction on the underwater mortgages it owns.
  • Probability of Recession Over 50%: ECB's Mersch. The probability of a recession has risen to over 50 percent, European Central Bank Governing Council member Yves Mersch said on Thursday in a radio interview after the ECB announced a surprise interest rate cut of a quarter point. "What a few months ago we considered a probability of less than 10 per cent, namely that we could fall back into recession and have negative economic growth over more than one quarter, that probability has in the meantime risen to over 50 percent," he told Luxembourg-based radio station RTL. "We see that over the past weeks and months the economy is practically in free fall," said Mersch, who is also governor of Luxembourg's central bank. "The markets don't believe anyone anymore and the risk aversion has risen so much that no-one is buying government bonds anymore, this is a very big danger," he added in a separate interview with Luxembourg newspaper Tageblatt on Thursday, following the rate cut.
  • Freddie Mac Loss Widens, Seeks $6 Billion From Treasury. Freddie Mac , the second-largest source of U.S. mortgage finance, said on Thursday it needed to borrow an extra $6 billion from the federal goverment as the shaky U.S. housing market resulted in its worst quarterly loss in more than a year. The government-owned company said it lost $4.4 billion in the third quarter, a big increase from a $2.5 billion loss in the year-ago period. Low sale prices on foreclosed homes in its inventory, low mortgage rates on its refinanced loans, and losses on derivative investments continued to drain cash from the lender that the government rescued in 2008. The company warned of further weakness ahead as the pace of foreclosure sales picks up.
  • LinkedIn(LNKD) Lifts Outlook, Stock Plan Raises Concerns. Professional networking company LinkedIn posted quarterly results that beat estimates and raised its full-year outlook, but margin expectations and plans for a share offer drew scrutiny from investors.
  • Obama Advisers Fret Over Energy Pipeline's Political Risks. Stung by months of protests, President Barack Obama's advisers are worried that administration approval for a planned oil pipeline from Canada could cost him political support from Democrats in 2012. Senior officials at the White House and Obama's Chicago campaign headquarters have fielded complaints from supporters who are unhappy about TransCanada Corp's plan to build a massive pipeline to transport crude from Alberta to Texas, sources familiar with the situation said. The State Department, which is overseeing the process, said this week a delay from its end-of-year target for the Keystone XL pipeline decision was possible as it evaluates the proposal. That would push the process into next year, just as the 2012 presidential election heats up. Obama's own re-election plans depend partially on his ability to energize his base of supporters, many of whom are disillusioned with his progress in fighting climate change and attaining other environmental goals. The pipeline has galvanized that discontent, leading to protests in Washington and across the country. More than 6,000 opponents have signed up to form a human ring around the White House on Sunday in what they hope will be a dramatic signal to Obama, according to environmental groups. Obama advisers fear a decision in favor of the project could dampen enthusiasm among volunteers needed for door-to-door campaigning in battleground states that are critical to Obama's re-election. "The potential that it's actually going to deflate their bodies on the ground in key states ... is kind of a new concern," said one environmental advocate close to the administration. He said officials were "very nervous" about the overlap between activists and potential political campaigners. That concern has grounding. The Sierra Club, a prominent environmental advocacy group, said approval of the pipeline would dampen enthusiasm among its 1.4 million members and supporters to fight for Obama next year.
  • Fluor(FLR) Q3, Outlook Short of Estimates; Shares Drop. Fluor Corp , the largest publicly traded U.S. engineering company, posted third-quarter earnings short of estimates and gave an outlook for next year below what analysts expected, sending its shares down 4 percent.
  • Starbucks(SBUX) Profit Up Despite Economic Jitters. Starbucks Corp's quarterly profit rose slightly more than expected after the summer's economic jitters failed to dilute the coffee habits of customers at the world's largest coffee chain. The stock, which closed at $41.40, rose 3 percent to $42.65 in after-hours trading.
  • Investors Want "Secrecy" Lifted in BofA(BAC) MBS Deal. Investors want to lift the "shroud of secrecy" over the proposed $8.5 billion settlement of Bank of America Corp's mortgage-backed securities liability in the coming weeks, a lawyer said on Wednesday.
Telegraph:
  • ECB's Teutonic Mario Chills Bond Rescue Hopes. Investors are slowly digesting the bittersweet message from Mario Draghi, the Teutonic Italian now at the helm of the European Central Bank (ECB). While he surprised and delighted markets with a quarter-point cut in interest rates to 1.25pc, reversing last July's ill-judged rise, he also dashed hopes for mass bond purchases to save Italy and for radical action to stop the crisis spiralling out of control. That matters far more. "What everybody wanted to know was whether the ECB would step up to the plate and do something grand and we didn't get that at all," said David Owen, of Jefferies Fixed Income. In a sombre debut, Mr Draghi warned that Euroland's economy is "heading towards mild recession by year-end" with mounting risks as the debt crisis drags on. He professed his "great admiration" for the hawkish traditions of the Bundesbank, seeking to allay fears in Germany that the ECB might drift away from orthodox monetarism. This was wise. One German tabloid said the job could not safely be entrusted to anyone from Italy, where inflation is as much a part of life as pasta – a crude variant of suspicions held from top to bottom of German society. To drive home the point, Mr Draghi issued a categoric warning that the ECB would not act as final guarantor of the system, or step in to rescue feckless states. "It would be pointless to think that sovereign bond rates can stably be brought down for a protracted period by outside intervention. The first and foremost responsibility lies with national economic policies. Put your public finances in order.
  • ECB President Mario Draghi Cuts The Euro's Last Lifeline. Anyone thinking that the arrival of Mario Draghi as president of the European Central Bank might herald a change in approach to the eurozone debt crisis would have been sadly disappointed by his first public appearance in the new role on Thursday.

ARD:
  • German Finance Minister Wolfgang Schaeuble wants the Greek public to decide whether they want to stay in the euro area, by referendum or elections, he said in an interview with television station ARD. Germany is willing to help, but Greece must implement the agreed measures, Schaeuble said. If Greece fails to do so, then something must be done to prevent contagion for the euro as a whole.
21st Century Business Herald:
  • The Chinese cities of Beijing, Shanghai and Tianjin and provinces including Jiangsu and Zhejiang plan to limit coal use to curb pollution. Beijing will limit annual coal use to 20 million tons by 2015, down 7 million tons from 2010.
ShanghaiDaily.com:
  • Housing Index Posts Decline. SHANGHAI'S existing housing index fell in October for the first time in 13 months, with the majority of home owners still reluctant to offer price discounts. The index, which monitors price fluctuations of the city's previously occupied homes, lost 3 points, or 0.12 percent, from a month earlier to 2,597, halting a rally since September 2010, the Shanghai Existing House Index Office said yesterday. "Though the index finally fell after gaining for 12 consecutive months, there are still no signs of notable price cuts at the moment despite an extremely sluggish sentiment," said Zhang Shu, an analyst at the index office. "Discounts of between 5 and 10 percent are offered by a limited number of local home sellers." The prices of existing homes in prime sites, including the four downtown districts in Puxi and Lujiazui in Pudong New Area, dipped 0.03 percent on average in October. The office said prices in 69 of 128 areas it tracked fell 0.24 percent on average last month while seven areas saw a gain of 0.28 percent on average. In the remaining 52 areas, prices were flat from September. A separate research released yesterday by Shanghai Centaline Property Consultants Ltd also showed a wide gulf between owners and buyers over future home prices, affecting sales last month. The nearly 300 branches of Centaline saw sale contracts involving existing homes drop 30 percent last month from September, with those costing between 2 million yuan and 3 million yuan (US$474,000) plunging the most at 50 percent from a month earlier. Song Huiyong, research director at Centaline Property, said: "Most home seekers are now expecting a discount of between 10 percent and 20 percent."
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are +.75% to +2.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 189.50 -14.0 basis points.
  • Asia Pacific Sovereign CDS Index 152.0 -3.0 basis points.
  • FTSE-100 futures -.13%.
  • S&P 500 futures -.11%.
  • NASDAQ 100 futures -.02%.
Morning Preview Links

Earnings of Note
Company/Estimate
  • (ALU)/.03
  • (ZEUS)/.41
  • (PXP)/.42
  • (VIA/B)/1.03
  • (TDS)/.42
Economic Releases
8:30 am EST
  • The Change in Non-Farm Payrolls for October is estimated at 95K versus 103K in September.
  • The Unemployment Rate for October is estimated at 9.1% versus 9.1% in September.
  • Average Hourly Earnings for October are estimated to rise +.2% versus a +.2% gain in September.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Tarullo speaking and Papadreou's Confidence vote could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

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